IMPACT OF WTO ON TEXTILE EXPORTS PARTICULARLY BEDLINEN FROM PAKISTAN

Abstract

MFA(Multi-Fiber Agreement) restricted a particular country to export its textile products beyond a certain level to European and US markets. It was done in order to have a multi-lateral liberal system of trading by terminating quota from textile exports by the end of 2005. One benefit of the extension of the quotas was that, due to the assurance of continued market share, the garment and textile industries were able to develop in some countries where they would not have existed without quotas. The elimination of textile quotas in 2005 has opened trade to fierce competition. The Agreement on Textiles and Clothing (ATC) was established under the WTO in 1995. This lengthy period was designed to lower opposition in the developed countries by providing an adequate adjustment period for domestic industries. Under the current quota regime, Chinese exports account for less than 20 percent of world trade in textiles and apparel – some research has suggested that this could grow rapidly to 50 percent in a new quota-free environment, and much of this would reflect a transfer of production facilities from other countries to China. Post-MFA Trade Regime. The impending phase-out of garment and textile quotas after 40 years of protection has created a great deal of concern among smaller developing countries in Asia. The ATC mandates the elimination of all quotas that limit access to American markets for textiles and apparel, but after January 2005, other mechanisms may be used to address situations in which domestic industries are adversely affected as a result of the liberalized trade environment. The bilateral agreement between the U.S. and China that made China’s accession to the WTO possible included a provision that allows the U.S. (and any other country) to establish new China-specific quotas until 2008, and possibly beyond. Whether the non-Chinese trade in textiles represents 50 percent of all trade (with no new quotas on China) or 80 percent of all trade (assuming quotas allow no growth in Chinese exports) or, more likely, somewhere in between, the end of quotas will create an entirely new competitive dynamics among firms in all countries. It is for this competition that countries need to prepare. In the textile sector, Pakistan can benefit from new openings if it could ensure quality and diversification of products, and overcome inefficiencies, bottlenecks, and red tape. Notwithstanding impressive export performance, Pakistan’s exports are still highly concentrated in few items and to a few countries. About one-half of Pakistan’s exports went to seven countries only. Pakistan’s economy, which grew at 6.4 percent in fiscal year 2003-04, achieved a broad-based growth of 8.35 percent in 2004-05. Textile export, has increased from $ 5.8 billion in 2001-02 to $ 8.0 billion in 2003-04. The quantum leap in exports of textiles occurred despite high tariffs and quantitative restrictions imposed particularly by economically developed countries. The recent survey of World Textiles conducted by Far Eastern Economic Review identifies Pakistan, India and China as the three major players of future in textiles by international analysts. The analysts also project that of these three countries, Pakistan’s textile industry has the best competitive advantage and potential. Bed linen Exports. Pakistan is an important exporter of bed wear in the world. The main driver for the development of this industry in Pakistan is the existence of power looms in the informal sector. Bed Linen is among the largest sector in terms of production and exports amongst all the made ups in Pakistan. Bed linen exports from Pakistan have made steady progress since 1994-95 and have arisen from about 6.5% to about 18% of the total textile exports in 2002-2003. Upward trend in bedlinen exports from Pakistan continued inspite of the imposition of anti-dumping duty in 1998. Antidumping measures, while permitted under the WTO, must comply with the procedures set out in the WTO Antidumping Agreement. Developing country members of the WTO have the same rights as industrialized members to use dispute settlement to defend their rights and interests. As the Indian case shows offence is the best form of defense. Pakistan should seriously consider contesting against the EU antidumping decision under the terms of the Dispute Settlement Understanding (DSU) of the WTO. Improvements in the procedures and the availability of resources at the WTO to help developing countries, have somewhat mitigated concerns like high costs and long litigation battles. Alongside Pakistan also needs to focus on policy changes in the areas of inadequate infrastructure, such as congestion and customs delays at ports, inadequate telecommunications infrastructure, uneven professional office practices, and uncompetitive and unreliable energy supplies to adapt to the new and competitive landscape. In the WTO environment we need to understand the needs of international buyers when they decide to source from a particular country. Sourcing decisions are made based on the priorities and needs of a particular company, and not all companies will have the same requirements. There are important cost and production differences between textile and garment companies, as well as between buyers from companies that sell clothing under a particular label or brand, and multi-good department store companies that sell many labels (and so have no particular loyalty to or concern over any single brand). If labor standards are poor or there are other risk factors, the department store company must change the vendor (even if only a few of the factories under that vendor are in violation). There is a strong economic rationale for increasing compliance with labor-market regulations that improves human capital, increase their productivity, are consistent with fundamental worker rights, and results in labor costs that are in line with market benchmarks. Because of the stiff competition, cost, efficiency, and speed to market are very important for a brand name company. Export Promotion Bureau could educate major textile exporters of these changing needs.